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Parallel imports (sometimes referred to as gray market goods) refer to branded goods that are imported into a market and sold there without the consent of the owner of the trademark in that market.

The goods have been manufactured by or under license by the brand owner and therefore are not counterfeit However, they may have been formulated or packaged for a particular jurisdiction, and then are imported into a different jurisdiction from that intended by the brand owner.

Exhaustion of IP rights refers to the extent to which IP rights holders can control the distribution of their branded goods. According to the concept of exhaustion, once IP right holders sell in a particular jurisdiction a product to which their IP rights are attached, they must allow the resale of that product in that jurisdiction. The IP rights covering the product have been “exhausted” by the first sale.

There are two types of exhaustion regimes: national (or regional) and international. The debate between which is preferable has been highly controversial.

“International (or Global) Exhaustion of Rights”

“International Exhaustion” is the principle that, once goods in relation to which the trademark is used have been put on the market by a trademark owner or with its consent somewhere in the world, the trademark owner has exhausted its trademark rights in relation to the sale of those goods anywhere in the world.

“National (or Regional) Exhaustion of Rights”

“National Exhaustion” describes a system that considers the brand owner’s trademark rights exhausted for a specific country or region once goods in relation to which the trademark is used have been put on the market in this particular country or region by the trademark owner or with its consent. The exhaustion does not extend to other countries or regions thereby allowing the trademark owner to rely on its trademark rights to prevent the unauthorized sale of these goods in other markets.

"Material Differences Approach"

Some countries adhere to the international exhaustion system but will prohibit the sale of parallel imports if they are materially different from the goods that the trademark owner has authorized to be put on the market in that country. Countries employing a material differences approach may have different standards for what they consider to be “material”.

INTA's position

INTA advocates the national (or regional) exhaustion of trademark rights in relation to the parallel importation of goods.

In addition, the Association supports the principle that international exhaustion should not apply to parallel imports in the absence of clear proof that the trademark owner expressly consented to such imports, and that the burden of proof should be on the party seeking to prove such consent.

In those countries that currently follow international exhaustion, and in which political or other conditions make it highly improbable that national exhaustion would be implemented, a “material differences” standard should be adopted in order to exclude parallel imports that are materially different from those products authorized for sale by the trademark owner in the domestic market.

Amicus Briefs

INTA Position: The principle of trademark exhaustion should apply only nationally with respect to parallel imports unless there is clear proof that the trademark owner has expressly consented to the sale and import of the goods in a foreign market.

INTA Position: INTA argued that a trademark proprietor has legitimate reasons to object to repackaging by a parallel importer where a connection to the parallel importer and damage to the trademark could be established

Outcome: The European Free Trade Association Court held that legitimate reasons to object to repackaging of pharmaceutical products may exist where changes to packaging are liable to damage the trademark's reputation

INTA Position: A parallel importer should be entitled to make only the minimum changes to the packaging necessary to maintain the principle of the free movement of goods. Changes to packaging should not be permitted to damage the assurance of quality or the brand image of the trademark owner.

Outcome: The European Court of Justice held that a trademark owner may rely on its trademark rights to prevent a parallel importer from repackaging pharmaceutical products unless the exercise of those rights contributes to a restriction of trade.

Reports

This Report created by the Parallel Imports Committee is intended as a resource for IP practitioners on the status of parallel imports and the exhaustion regime in most of the relevant worldwide jurisdictions. It provides a quick reference to the situation and options for brand owners when encountering parallel imports in a certain jurisdiction.

This report is intended to assist trademark owners in working with U.S. Customs and Border Protection (“CBP”) to prevent parallel imports in the U.S. It focuses primarily on Lever rule regulatory protection available through CBP. The guide is accompanied by a separate sample Product Identification Training Guidethat can be used to help formulate your own such guide.

Provides support for INTA’s disapproval of parallel imports except between countries that are in recognized regions with truly harmonized markets and the Association’s position that in disputes concerning parallel imports it should be for the parallel importer to prove it has the trademark owner’s consent to sell the goods.
Parallel Imports Committee